Are Cable Prices Rising or Falling?

If there is one thing I firmly believe about economic policy, it's that utility policy is hard and there are no obviously correct paths to the happy outcome. For a sense of how hard it is, just ask yourself a basic question about cable television service during the era of consolidation. Has it gotten cheaper or more expensive? Well, the Federal Communications Commission collects data on this, but the data give two answers to the question.

One answer is that the average basic cable package cost $22.35 back in 1995 and $61.63 back in 2012, so the cost has clearly risen faster than the overall rate of inflation.

The other answer is that a basic cable package in 1995 had 44 channels on average, for a per channel price of $0.60 whereas 2012's 150 channel package had a per channel price of $0.51, so the nominal price has actually fallen substantially.

Top Comment

Calculating and comparing per channel pricing in bundled cable packages is meaningless, since many of those additional channels are just duplicated programing or junk such as shopping channels. The cost of cable is increasing over time pure and simple. More...

So the question of price trends becomes related to the debate over whether it would make sense for the FCC to force cable providers to "unbundle" their offers and sell channels à la carte. If they did that, people would only subscribe to the channels they really like. Most people would see their average bill go down, a relatively small number of television superfans would see their bills soar, and almost everyone's price per channel would skyrocket. Instead of paying $61.63 for 150 channels, the average consumer might pay $55 total for their dozen favorite channels. In the absence of bundling, more competition would encourage less bundling—meaning much higher per channel prices, but slightly lower total household expenditures on cable.

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Of course, with the pay-television marketplace shrinking (my wife and I don't subscribe) the "cable" industry is more and more important as a source of broadband Internet rather than cable. But the cable market itself is a great case study in how difficult it is to say whether the prevailing policy regime is really working or not.